Slovenia's changeover to the euro - a clear
success

The changeover to the euro in Slovenia was a swift
and smooth affair and although the price of some goods and services increased,
overall inflation has remained broadly stable, shows a Communication adopted by
the Commission four months after Slovenia became the
13th member of the euro area. For the
other countries waiting to adopt the euro, the experience shows that the 'Big
Bang' approach - i.e. irrevocable locking of the exchange rate and simultaneous
introduction of the euro banknotes and coins – works and that a two-week
dual circulation period is sufficient provided that the changeover is well and
timely prepared. In some aspects, e.g. return of legacy cash, Slovenia even
performed better than when the euro cash was introduced in 2002, thereby
minimising costs and burdens on businesses.

"Slovenia's adoption of the euro was a swift and smooth affair. This once
more underlines the importance of early and careful preparations and of timely
information and communication on the euro," said European Economic and
Monetary Affairs Commissioner Joaquin Almunia

Slovenia adopted the euro on the 1st of January 2007. Contrary to
the first group of countries that started by fixing irrevocably the conversion
rate of their currency into the euro in 1999 (2001 in for Greece) and got the
euro cash only three years later (one year for Greece), Slovenia went for a 'Big
Bang' scenario where the two took place simultaneously. All EU countries that
have yet to adopt the euro and have drawn up a so-called National Changeover
Plan also plan for a 'Big Bang' scenario. This makes sense since the euro has
been in circulation for five years.

Everything went swiftly and smoothly

Slovenia's changeover from the tolar to the euro was a swift and smooth
affair. The fact that Slovenians were already familiar with the euro owing, in
particular, to their proximity with euro–area members Austria and Italy
also contributed to a rapid changeover process. Before €-day, the vast
majority (more than 90%) had already seen euro banknotes and coins and most of
them had even used the single currency.

A daily observation[1] of
the situation in the field for the Commission showed that on 5 January, only
three working days into the changeover process, more than half of the
respondents to a survey had only euro cash in their wallets and purses, no
longer tolars. On the same day, more than 70% of all cash payments were also
already carried out in euro. By mid-January, virtually all cash payments were
carried out in the new currency, confirming the technical feasibility of a short
period of dual circulation of euro and national cash - two weeks in the case of
Slovenia -, which contributes to minimise the burden on retailers and other
businesses, and speeds up the transition.

In some ways, the changeover was even swifter than in 2002. More than 80% of
the tolar banknotes, in value, had been returned to the Slovenian central bank
by 11 January compared with only 40% of the legacy notes in the first wave of
countries. This prevented a repetition of the severe bottlenecks recorded in
2002 when retailers in some countries struggled with storage and security
problems.

Inflation remains broadly stable

The Slovenian experience illustrated once more that perception, expectation
and reality with respect to price evolutions do not necessary go together,
confirming that a change of currency affects people's scales of values and
requires a mental adjustment process that is only gradual.

While there were concerns about price increases and some unusual rises did
indeed occur, those fears were largely unjustified.

Overall prices actually declined in January in Slovenia, compared to December
2006, as they have been doing for a number of years due to the impact of the
seasonal sales. The fall in annual inflation from 3% in December 2006 to 2.8% in
January was accentuated by the then decreasing energy prices. Overall, in the
first four months of this year prices went up by 1.3% against 1.5% for the same
period of 2006, according to preliminary information recently published by the
Statistical Office of Slovenia.

Based on the preliminary information reported by the Slovenian statistics
office, Eurostat puts the total impact of the changeover on consumer price
inflation during and after the changeover period at 0.3 percentage points, which
is similar to the experience of the first-wave
changeover.[2] A separate study
by the Institute of Macroeconomic Analysis and Development of Slovenia estimated
the effect of the changeover on inflation at 0.24 percentage points.

After an initial period during which a gap emerged between real inflation and
perceived inflation, that gap has now started to diminish in Slovenia, pointing
to a more rapid normalisation of price perceptions than has been the case in the
euro area. However, that gap has also started to narrow in the latter case (see
graphs below).

All in all, a vast majority (95%) of Slovenians believed that the changeover
took place smoothly and efficiently, according to a survey conducted at the end
of January.[3] At the same
time, more than nine out of ten Slovenian citizens feel well informed about the
euro and were satisfied with the level of information they had been provided by
the national authorities. This once more demonstrates the crucial role of
information and communication on the euro in ensuring a successful changeover
process.